Don't buy exporters' line

Don't buy exporters' line

For U.S. exporters, a marginalized lot if there's ever been one, these should be the best of times - a sinking dollar, robust foreign demand and quality product to sell. But the story isn't as rosy as it might be; despite a favorable environment in theory, a roadblock has emerged, one large enough to attract the interest of general-circulation media.

The problem, alas, is containers - not enough of them in the Midwest where they're needed for loading, and freight rates that many complain are so high they render the commodity packed inside uncompetitive in foreign markets. Without this bottleneck, it is argued, exports would be a lot higher than they are now, more jobs would be created, the trade deficit would be lower - you get the idea.

It's easy to see how the press would jump on such a story. Something certainly sounds fishy when U.S. exporters, a rare star in the economy, can't ship out their soybeans, cotton or frozen meat - not because buyers are scarce or their product is too pricey, but because they can't get shipping containers. Come again?

It has been suggested that up to 30 percent more product would have been shipped had adequate numbers of containers been available. You can see the finger-pointing begin. It's the fault of the carriers, a politically convenient target, given that the exporters are American and the carriers are nearly all foreign. And the suggested remedy, as is typically the case when carriers' practices are cast in an unfavorable light, is to call in federal regulators to investigate and revoke their antitrust immunity.

All of which misses the point about what is really going on. Container lines are not a lot different than other businesses that want their customers to go away happy. It is no less unpleasant for a carrier than for anyone else to deliver bad news to a customer. The reality is that the reason behind the container shortage isn't poor customer service or predatory business practices. Rather, it is a global phenomenon of supply and demand that's not dissimilar to what is going on right now with oil.

Petroleum is a global market, and with demand surging in countries such as India and China, Americans have to pay the going rate just like everyone else. Politicians typically blame oil companies, but those protests usually go nowhere because the truth is that the driver of price isn't gouging but global market forces.

Containers aren't a lot different. They ebb and flow around the world according to the whims of global trade. Carriers will always divert their limited supply of containers and ships to the markets that are growing the fastest and can generate rates high enough to achieve adequate levels of profitability. For many years, the U.S. was such a market, and containers were available in abundance throughout the agricultural hinterland, even though carriers' margins for handling export cargo have been slim to none.

In recent years, the picture changed as U.S. growth lagged Europe and the developing world. Last year, as the U.S. slowed and Europe happened to surge at the same time, carriers shifted vessels and equipment to the Asia-Europe market where they could be more economically deployed.

They will do the same thing on a case-by-case basis everywhere around the world when it comes to individual containers. Even with unfulfilled demand from U.S. exporters, empty containers are still shipped out of U.S. ports on a daily basis. Exporters smell a rat, but what is happening is nothing more than an economic decision to move the container empty rather than filled. The revenue the carrier will receive does not cover the out-of-pocket or opportunity cost of losing another load originating in Asia because the container is tied up with the export load.

Another example: During the first gulf war, exporters of refrigerated cargo howled in protest at the scarcity of reefer containers as they were being diverted to support the war, but carriers knew where their bread was being buttered. One way to rectify the situation is to raise export rates, and carriers have been doing that, eliciting protests but at the same time handling a good portion of the growth in export cargo generated by the falling dollar. Still, U.S. export rates remain comparatively low globally, so jacking them up to the levels where they will attract equipment into the U.S. market is bound to produce more pain. In other words, we haven't heard the last of this issue.